In his 2011 letter to Berkshire Hathaway shareholders, Warren Buffett offered some wisdom on gold as an investment option. For some reason, that little section of his letter (which you can download here as a pdf document – see page 18) has gained renewed interest in the media. Maybe, with the threat of collapsing Euro economies and the general volatility of increasingly deregulated markets, investors are wondering if maybe gold is a good hedge. Buffett says no. Buffett imagines all the world’s gold melted and consolidated into a single big cube 68 feet along each side. It fits easily within a baseball stadium’s infield. And it’s worth 9.6 trillion dollars. Then he invites his readers to imagine what else they could buy with 9.6 trillion dollars. How about all the cropland in America and 16 Exxon Mobiles with a trillion dollars to spare? He argues that one should always opt for the cropland and oil companies because gold has no use and produces nothing whereas cropland and oil companies will go on producing value for years to come.
With respect, Mr. Buffett is wrong. There are all kinds of economists and investment advisers writing articles about why he’s wrong. There are those who say he’s comparing apples and oranges. And there are those who say companies like Exxon Mobile won’t go on producing things of value for years and years because, like gold producers, they deal in a finite commodity. Blah blah blah.
My argument looks to something simpler than that. Buffett argues on the basis of usefulness and productivity. My view is that human beings don’t care about usefulness and productivity. Buffett’s argument depends on the rationality of humans. I see no evidence to support that assumption.
Here’s what I see:
• at an Occupy demonstration, a man comes up to me in all seriousness and introduces himself as Pierre Elliot Trudeau;
• during a blizzard that shuts down the entire city, I note that a psychic is still open for business;
• my brother and his wife (both chartered accountants) buy a giant painting of a cow for no other reason than that they like the way it looks;
• as front page news, we learn that two old men (named Benedict and Francis) kneel together and speak to an invisible being;
• the world’s most popular television series (for the time being) concerns a kingdom threatened by violent ghostly beings and features a woman who crawls into fire to bear dragons, a smart-mouthed dwarf, and a lame child who dreams of a three-eyed raven;
• after twenty-seven people (including twenty children) are shot to death in Newtown, Connecticut, the sale of handguns shoots up on the belief that more handguns will make people safer;
• 21% of adults in the U.S. agree that “Winning the lottery represents the most practical way [for me] to accumulate several hundred thousand dollars.”
• once a week for three hours, I rehearse with a choir, which means that I spend a lot of time voicing pitched words for no particular reason except personal enjoyment;
• the latest Canadian budget removes tariffs on hockey equipment, making it more affordable for families to send their children to rinks where they can whack chunks of hardened rubber with a stick;
and so on.
The way we value ourselves – and our friends, our time, possessions, beliefs, our planet – is irrational. The very act of valuation is irrational. The only thing I know for certain is that long after Exxon Mobile has passed from existence, there will still be people paying a premium to wear gold around their necks and others buying bricks of it to secure themselves against a forever uncertain future.
Our psychic lives are a blend of love, desire, beauty and angst. These things motivate our aesthetics as much as our investments. In fact, I wonder if there’s a distinction. I want balance in my portfolio as much as on my walls. And probably for the same reason. I need to shore up the walls around me to keep the chaos at bay.
I would go so far as to say that, given the irrational nature of our valuations, the biggest bang we can ever get for our buck is to invest in poetry.